City of Chicago, Illinois Chicago O Hare International Airport

Transcription

1 City of Chicago, Illinois Chicago O Hare International Airport Basic Financial Statements for the Years Ended December 31, 2006 and 2005, Required Supplementary Information, Additional Information, Statistical Information and Independent Auditors Report

2 CITY OF CHICAGO, ILLINOIS CHICAGO O HARE INTERNATIONAL AIRPORT TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT 1 2 Page MANAGEMENT S DISCUSSION AND ANALYSIS (REQUIRED SUPPLEMENTARY INFORMATION) 3 12 BASIC FINANCIAL STATEMENTS: Statements of Net Assets 13 Statements of Revenues, Expenses and Changes in Net Assets 14 Statements of Cash Flows Notes to Basic Financial Statements ADDITIONAL INFORMATION: First and Second Lien General Airport Revenue Bonds Calculation of Coverage Third Lien General Airport Revenue Bonds Calculation of Coverage STATISTICAL INFORMATION (UNAUDITED) Historical Operating Results, Ten Years Ended December 31, Debt Service Schedule 40 Capital Improvement Plan (CIP), Operations of the Airport, Ten Years Ended December 31, Enplaned Commercial Passengers by Airline, Ten Years Ended December 31, Historical Passenger Traffic, Ten Years Ended December 31, Historical Total Origin and Destination (O&D) Enplanements Chicago Region Airports, Ten Years Ended December 31, Enplanement Summary, Ten Years Ended December 31, Aircraft Operations, Ten Years Ended December 31, Net Airline Requirement and Cost Per Enplaned Passenger, Year Ended December 31, Historical PFC Revenues, Ten Years Ended December 31, Passenger Facility Charge (PFC) Debt Service Coverage, Ten Years Ended December 31,

3 INDEPENDENT AUDITORS REPORT The Honorable Richard M. Daley, Mayor, and Members of the City Council City of Chicago, Illinois We have audited the accompanying basic financial statements of Chicago O Hare International Airport (O Hare) of the City of Chicago, Illinois (City) as of December 31, 2006 and 2005, and for the years then ended, listed in the foregoing table of contents. These financial statements are the responsibility of the City s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City s internal control over financial reporting for O Hare. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1, the basic financial statements referred to above present only Chicago O Hare International Airport and are not intended to present the financial position of the City, the results of its operations, and its cash flows, in conformity with accounting principles generally accepted in the United States of America. In our opinion, such basic financial statements present fairly, in all material respects, the financial position of Chicago O Hare International Airport as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The Management s Discussion and Analysis as listed in the forgoing table of contents is not a required part of the basic financial statements, but is supplementary information required by the Governmental Accounting Standards Board. The Management Discussion and Analysis is the responsibility of the City s management. We have applied certain limited procedures that consisted principally of inquiries of management regarding methods of measurement and presentation of the required supplementary information. However, we did not audit the information and we express no opinion or any other form of assurance on it

4 Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information listed in the foregoing table of contents, which is also the responsibility of the City s management, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such additional information has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly presented, in all material respects, when considered in relation to the financial statements taken as a whole. The statistical information, as listed in the foregoing table of contents, is also presented for the purpose of additional analysis and is not a required part of the basic financial statements. Such statistical information has not been subjected to auditing procedures and, accordingly, we do not express an opinion on it. June 27,

5 MANAGEMENT S DISCUSSION AND ANALYSIS ($ In Thousands) The following discussion and analysis of Chicago O Hare International Airport s (Airport) financial performance provides an introduction and overview of the Airport s financial activities for the fiscal years ended December 31, 2006 and Please read this discussion in conjunction with the Airport s basic financial statements and the notes to basic financial statements immediately following this section. FINANCIAL HIGHLIGHTS 2006 Operating revenues for 2006 increased by $13,039 (2.4 percent) compared to prior year operating revenues. Operating expenses before depreciation and amortization increased by $2,620 compared to 2005 primarily due to increased repairs and maintenance, professional and utilities costs. The Airport s total net assets at December 31, 2006 were $1,024,270. This is an increase of $145,019 (16.5 percent) over total net assets at December 31, Capital asset additions for 2006 were $754,808 (116.8 percent increase over 2005) principally due to land acquisition, terminal improvements, security enhancements, snow dump improvements, runway, roadway and parking improvements. During 2006, the Airport sold $156,150 of Chicago O Hare International Airport Third Lien Revenue Refunding Bonds, Series 2005 A-D. Total outstanding revenue bonds, net of unamortized discount and loss on refunding, at December 31, 2006 were $5,239, Operating revenues for 2005 increased by $90,308 (20.4 percent) compared to prior year operating revenues. Operating expenses before depreciation and amortization increased by $34,136 compared to 2004 primarily due to increased repairs and maintenance, professional and utilities costs. The Airport s total net assets at December 31, 2005 were $879,251. This is an increase of $71,712 (8.9 percent) over total net assets at December 31, Capital asset additions for 2005 were $348,225 (19.4 percent increase over 2004) principally due to land acquisition, terminal improvements, security enhancements, snow dump improvements, runway, roadway and parking improvements. During 2005, the Airport sold $1,500,000 and $388,343 of Chicago O Hare International Airport Third Lien Revenue Refunding Bonds, Series 2005 A-D and Commercial Paper Notes, respectively. Total outstanding revenue bonds and notes, net of unamortized discount and loss on refunding, at December 31, 2005 were $5,655,

6 OVERVIEW OF THE BASIC FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the Airport s basic financial statements. The Airport s basic financial statements comprise the financial statements and the notes to financial statements. In addition to the basic financial statements this report also presents additional and statistical information after the notes to basic financial statements. The Statements of Net Assets present all Airport s assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by private-sector companies. The difference between assets and liabilities is reported as net assets. The increase or decrease in net assets may serve as an indicator, over time, whether the Airport s financial position is improving or deteriorating. However, the consideration of other non-financial factors such as changes within the airline industry may be necessary in the assessment of overall financial position and health of the Airport. The Statements of Revenues, Expenses and Changes in Net Assets present all current fiscal year revenues and expenses, regardless of when cash is received or paid, and the ensuing change in net assets. The Statements of Cash Flows report how cash and cash equivalents were provided and used by the Airport s operating, capital financing and investing activities. These statements are prepared on a cash basis and present the cash received and disbursed, the net increase or decrease in cash and cash equivalents for the year and the cash and cash equivalents balance at year-end. The Notes to Basic Financial Statements are an integral part of the basic financial statements; accordingly, such disclosures are essential to a full understanding of the information provided in the basic financial statements. In addition to the basic financial statements, this report includes Additional and Statistical Information. The Additional Information section presents the debt service coverage calculations, and the Statistical Information section includes certain unaudited information related to the Airport s historical financial and non-financial operating results and capital activities. FINANCIAL ANALYSIS Landing fees, terminal area use charges and fueling system charges are assessed to the various airlines throughout each fiscal year based on estimated rates. Such rates are designed to yield collections from airlines adequate to cover certain expenses and required debt service and fund deposits as determined under provisions of the Amended and Restated Airport Use Agreement and Terminal Facilities Lease and the International Terminal Use Agreement and Facilities Lease (Use Agreements). Incremental amounts due from the airlines arise when amounts assessed, based on the estimated rates used during the year, are less than actual expenses and required deposits for the year. Such incremental amounts due from airlines are included in accrued revenue. Incremental amounts due to the airlines arise when amounts assessed, based on the estimated rates used during the year, exceed actual expenses and required deposits for the year. Such incremental amounts due to airlines are included in deferred revenue

7 At December 31, 2006 the Airport s financial position continued to be strong with total assets of $6,718,708 total liabilities of $5,694,438 and net assets of $1,024,270. A comparative condensed summary of the Airport s net assets at December 31, 2006, 2005 and 2004 is as follows ($ in thousands): Net Assets Current assets $ 218,446 $ 278,256 $ 214,406 Noncurrent assets: Restricted and other assets 2,437,659 3,249,907 1,775,985 Capital assets net 4,062,603 3,427,334 3,199,996 Total noncurrent assets 6,500,262 6,677,241 4,975,981 Total assets 6,718,708 6,955,497 5,190,387 Current liabilities 158, , ,566 Noncurrent liabilities 5,536,103 5,858,824 4,193,282 Total liabilities 5,694,438 6,076,246 4,382,848 Net assets: Invested in capital net of related debt 213, , ,193 Restricted 751, , ,504 Unrestricted 60,111 60,834 24,842 Total net assets $ 1,024,270 $ 879,251 $ 807, Current assets decreased by $59,810 (21.5 percent) primarily due to decreased cash and cash equivalents balances at December 31, The decrease of cash and cash equivalents and investments was primarily due to the payment of current accounts receivable and deferred revenue during The Airport s current ratio (current assets/current liabilities) at December 31, 2006 and 2005 was 1.37:1 and 1.28:1, respectively. Restricted and other assets decreased by $812,248 (25.0 percent) primarily due to the use of construction funds, capitalized interest and debt service funds of $511,436, $57,133 and $320,938, respectively, offset by increased cash balances of $48,495 of PFC funds and increased prepaid insurance expenses related to the O Hare Modernization Program s (OMP) Owner Controlled Insurance Program (OCIP) of $18,004. Capital assets increased by $635,269 (18.5 percent) due principally to capital activities of the Capital Development Program and the OMP at the Airport. The decrease in current liabilities of $59,087 (27.2 percent) is directly related to the decreased accounts payable ($12,708), due to other City funds liabilities ($1,645), deferred revenue ($41,288) and advances for prepaid terminal and hanger rent ($3,446). Noncurrent liabilities decreased by $322,721 (5.5 percent) mainly due to the payment of approximately $389,706 to pay off outstanding commercial notes of $389,706 offset by increased accounts payable balance of $68,573 during Net assets may serve, over a period of time, a useful indicator of the Airport s financial position. As of December 31, 2006 total net assets were $1,024,270, an increase of $145,019 (16.5 percent) over Due to the residual Airport use agreement, this increase is mainly due to the $73,781 and $71,238 gain from - 5 -

8 operations and nonoperating revenues and expenses and Airport Improvement Program (AIP) capital grants recognized, respectively, during Current assets increased by $63,850 (29.8 percent) primarily due to increased cash and cash equivalents balances at December 31, The increase of cash and cash equivalents and investments was primarily due to the collections of additional revenue, deferred revenue and advances for terminal and hangar rent offset by payments for accounts payable and due to other City funds. The Airport s current ratio (current assets/current liabilities) at December 31, 2005 and 2004 was 1.28:1 and 1.13:1, respectively. Restricted and other assets increased by $1,473,922 (83.0 percent) primarily due to bond proceeds of approximately $1,279,000 from the issuance of the Chicago O Hare International Airport Revenue Bonds, Series 2005, that was deposited into certain restricted construction, capitalized interest and debt service accounts, increased interest receivable of $4,746 due to higher investment balances and greater interest yields over 2004 and increased due from other governments of $19,573. Capital assets increased by $227,338 (7.1 percent) due principally to capital activities of the Capital Development Program and the O Hare Modernization Program (OMP) at the Airport. The increase in current liabilities of $27,856 (14.7 percent) is directly related to the increased accounts payable ($19,591), due to other City funds liabilities ($1,840), deferred revenue ($3,668) and increased advances for prepaid terminal and hangar rent ($2,757). Noncurrent liabilities increased by $1,665,542 (39.7 percent) mainly due to the issuance of $1,500,000 and $388,343 of Chicago O Hare International Airport Third Lien Revenue Refunding Bonds, Series 2005 A-D and Commercial Paper Notes, respectively, offset by the refunding of approximately $322,000 of certain bonds. Net assets may serve, over a period of time, a useful indicator of the Airport s financial position. As of December 31, 2005 total net assets were $879,251, an increase of $71,712 (8.9 percent) over Due to the residual Airport use agreement, this increase is mainly due to the $29,237 and $42,475 gain from operations and nonoperating revenues and expenses and Airport Improvement Program (AIP) capital grants recognized, respectively, during

9 The primary sources of Airport operating revenues are landing fees, terminal area use charges, rents and concession revenues as defined within the Airline Use Agreement and Facilities Lease. These revenues fund Airport operating expenses, fund deposits and net debt service requirements. A comparative condensed summary of the Airport s changes in net assets for the years ended December 31, 2006, 2005 and 2004 is as follows ($ in thousands): Changes in Net Assets Operating revenues Landing fees and terminal charges $ 304,512 $ 297,829 $ 228,276 Rents, concessions and other 241, , ,293 Total operating revenues 545, , ,569 Operating expenses: Salaries and wages 144, , ,890 Repairs and maintenance 73,591 73,903 66,066 Professional and engineering 45,357 52,141 33,449 Other operating expenses 90,841 91,895 83,424 Depreciation and amortization 141, , ,661 Total operating expenses 496, , ,490 Operating income (loss) 49,335 38,992 (12,921) Nonoperating revenues 225, , ,927 Nonoperating expenses (201,004) (199,867) (196,415) Capital grants 71,238 42,475 19,795 Increase (decrease) in net assets $ 145,019 $ 71,712 $ (25,614) 2006 Landing fees and terminal area use charges for the years 2006 and 2005 were $304,512 and $297,829, respectively. Rents, concessions and other revenues were $241,404 and $235,048 for the years 2006 and 2005, respectively. The increase in 2006 operating revenues of $13,039 (2.4 percent) compared to 2005 was primarily due to increased landing fees, terminal rental and usage revenues and concession revenues of approximately $1,303, $9,186 and $4,740, respectively, offset by decreased reimbursements of $2,190. Such activity was due to the residual Airport Use Agreement and Terminal Lease that requires airline revenue to be recognized to the extent necessary to pay the Airport s operating and maintenance expenses, net debt service and fund deposit requirements, reduced by non-airline revenues. Salaries and wages in 2006 increased by $10,770 compared to This increase is primarily due to scheduled salary increases related to contract wage agreements. Repairs and maintenance expenses of $73,591 in 2006 remained flat when compared to Professional and engineering costs decreased by approximately $6,784 from $52,141 in 2005 to $45,357 in This decrease is mainly due to decreased parking management fees of approximately $6,000 in 2006 compared to Other operating expenses of $90,841 decreased by $1,054 in 2006 compared to 2005 mainly due to a reduction in utility costs, and materials and supplies of $2,202 and $2,032, respectively, offset by increased purchases of vehicles ($1,477), increased insurance costs ($1,244) and increased pension costs ($1,192). Other operating expenses are mainly comprised of employee benefit costs, insurance premiums, indirect costs and utilities. Depreciation and amortization expense remained flat compared to 2005 due to certain assets being completely depreciated

10 Fiscal year 2006 nonoperating revenues of $225,450 are comprised of passenger facility charges (PFC) revenue ($148,050) and interest income ($77,400). During 2006, nonoperating revenues increased by $35,338 principally due to increased PFC revenues of $3,803 as a result of increased PFC enplanement activity and interest income of $31,535 due to higher investment yields year over year. Nonoperating expenses of $201,004 and $199,867 for the years 2006 and 2005, respectively, comprised PFC and bond interest expenses. The increase of $1,137 (0.6 percent) for 2006 over 2005 was mainly due to additional interest expense requirements related to variable rate bonds. Capital grants, comprised mainly of federal grants, increased from $42,475 in 2005 to $71,238 in 2006, a 67.7 percent increase, as a result of when capital expenditures were incurred (revenue recognized) and thus became eligible for the related reimbursement from the Federal government Landing fees and terminal area use charges for the years 2005 and 2004 were $297,829 and $228,276, respectively. Rents, concessions and other revenues were $235,048 and $214,293 for the years 2005 and 2004, respectively. The increase in 2005 operating revenues of $90,308 (20.4 percent) compared to 2004 was primarily due to increased landing fees, terminal rental and usage revenues and concession revenues of approximately $26,385, $44,217 and $22,509, respectively, offset by decreased reimbursements of $2,803. Such activity was due to the residual Airport Use Agreement and Terminal Lease that requires airline revenue to be recognized to the extent necessary to pay the Airport s operating and maintenance expenses, net debt service and fund deposit requirements, reduced by non-airline revenues Salaries and wages in 2005 decreased by $864 compared to This decrease is primarily due to a decrease of approximately $8,500 related to the privatization of certain custodial services offset by an increase of approximately $6,500 for the Laborers contract wage agreement. Repairs and maintenance expenses of $73,903 in 2005 increased approximately $7,800 over This increase is mainly due to increased snow removal costs of approximately $2,000, increased property management costs of approximately $2,100 and increased HVAC costs of approximately $1,800 over Professional and engineering costs increased by approximately $18,600 from $33,449 in 2004 to $52,141 in This increase is mainly due to increased parking management fees of approximately $8,300 and increased privatized custodial costs of approximately $8,500 in Other operating expenses of $91,895 increased by $8,471 in 2005 compared to 2004 mainly due to additional increased utility costs of approximately $8,200. Other operating expenses mainly comprised employee benefit costs, insurance premiums, indirect costs and utilities. Depreciation and amortization expense increased $4,259 (3.1 percent) as a result of the continued capital activities of the Capital Improvement Program. Fiscal year 2005 nonoperating revenues of $190,112 are comprised of passenger facility charges (PFC) revenue ($144,247) and interest income ($45,865). During 2005, nonoperating revenues increased by $26,185 principally due to increased PFC revenues of $2,514 and interest income of $23,671. Nonoperating expenses of $199,867 and $196,415 for the years 2005 and 2004, respectively, were comprised of PFC and bond interest expenses. The increase of $3,452 (1.8 percent) for 2005 over 2004 was mainly due to additional interest expense requirements related to variable rate bonds. Capital grants, comprised mainly of federal grants, increased from $19,795 in 2004 to $42,475 in 2005, a 115 percent increase, as a result of when capital expenditures were incurred and thus became eligible for the related reimbursement

11 A comparative summary of the Airport s changes in cash flows for the years ended December 31, 2006, 2005 and 2004 is as follows ($ in thousands): Cash Flows Cash from activites: Operating $ 135,387 $ 210,415 $ 208,887 Capital and related financing (1,104,290) 1,220,566 (390,049) Investing (189,249) (39,486) 122,681 Net change in cash and cash equivalents (1,158,152) 1,391,496 (58,481) Cash and cash equivalents: Beginning of year 2,162, , , End of year $ 1,003,878 $ 2,162,030 $ 770,534 As of December 31, 2006 the Airport s available cash and cash equivalents of $1,003,878 decreased by $1,158,152 compared to $2,162,030 at December 31, 2005 due to positive flows of cash provided by operating activities of $135,387, offset by the use of capital and related financing activities and investing activities of $1,104,290 and $189,249, respectively. Total cash and cash equivalents at December 31, 2006 comprised unrestricted and restricted cash and cash equivalents of $116,707 and $887, As of December 31, 2005 the Airport s available cash and cash equivalents of $2,162,030 increased by $1,391,496 compared to $770,534 at December 31, 2004 due to positive flows of cash provided by operating and capital and related financing activities of $210,415 and $1,220,566, respectively, offset by the use of $39,486 for investing activities. Total cash and cash equivalents at December 31, 2005 comprised unrestricted and restricted cash and cash equivalents of $190,329 and $1,971,701. CAPITAL ASSET AND DEBT ADMINISTRATION At the end of 2006 and 2005 the Airport had $4,062,603 and $3,427,334, respectively, invested in net capital assets. During 2006, the Airport had additions of $754,808 related to capital activities. This included $236,831 for land acquisition and the balance of $517,977 for terminal improvements, security enhancement, snow dump improvements, runway, drainage and parking improvements. During 2006, completed projects totaling $112,253 were transferred from construction in progress to applicable buildings and other facilities capital accounts. These major completed projects were related to electrical system improvements, runway and taxiway rehab, fueling system upgrades, apron rehab, security enhancement, heating and refrigeration, water drainage and terminal improvements

12 The Airport s capital assets at December 31, 2006, 2005 and 2004 are summarized as follows ($ in thousands): Capital Assets at Year-End Capital assets not depreciated: Land $ 471,110 $ 234,279 $ 161,402 Construction in progress 941, , ,887 Total capital assets not depreciated 1,412, , ,289 Capital assets depreciated: Buildings and other facilities 4,407,296 4,295,043 4,180,158 Less accumulated depreciation for: Buildings and other facilities (1,756,877) (1,637,338) (1,516,451) Total capital assets depreciated net 2,650,419 2,657,705 2,663,707 Total property and facilities net $ 4,062,603 $ 3,427,334 $ 3,199,996 The Airport s capital activities are funded through Airport revenue bonds, federal and state grants, passenger facility charges (PFC) and Airport revenue. Additional information on the Airport s capital assets is presented in Note 5 of the notes to the financial statements. In December 2006 the Airport sold $156,150 of Chicago O Hare International Airport Third Lien Revenue Bonds, Series 2006 A-D. The bonds have maturity and mandatory redemption dates ranging from January 1, 2008 to January 1, Certain net proceeds were used to refund certain first and second lien bonds and certain proceeds were used to fund capitalized interest deposit requirements for certain third lien bonds. In December 2005 the Airport sold $1,500,000 of Chicago O Hare International Airport Third Lien Revenue Bonds, Series 2005 A-D. The bonds have maturity and mandatory redemption dates ranging from January 1, 2014 to January 1, Certain net proceeds will be used to finance portions of the O Hare Modernization Program (OMP), and certain proceeds were used to refund certain first and second lien bonds and certain proceeds will be used to refund outstanding commercial paper notes

13 The Airport s outstanding debt at December 31, 2006, 2005 and 2004 is summarized as follows ($ in thousands): Outstanding Debt at Year-End Revenue bonds and notes payable $ 5,252,019 $ 5,675,591 $ 4,110,043 Unamortized: Bond premium (discount) 52,932 55,656 (8,247) Deferred loss on refunding (65,402) (75,962) (83,852) Total outstanding debt net 5,239,549 5,655,285 4,017,944 Current portion (101,620) (462,076) (60,355) Total long-term revenue bonds and notes payable net $ 5,137,929 $ 5,193,209 $ 3,957,589 Additional information on the Airport s long-term debt is presented in Note 4 of the notes to the basic financial statements, and the Statistical Information section of this report. The Airport s revenue bonds at December 31, 2006 had credit ratings with each of the three major rating agencies as follows: Moody s Investor Standard Fitch Services & Poor s Ratings First Lien Chicago O Hare Revenue Bonds A1 A+ AA- Second Lien Chicago O Hare Revenue Bonds A1 A AA- Third Lien Chicago O Hare Revenue Bonds A2 A- A First Lien Passenger Facility Charge Revenue Bonds A1 A+ A+ Second Lien Passenger Facility Charge Revenue Bonds A2 A A At December 31, 2006 and 2005 the Airport was in compliance with the debt covenants as stated within the Master Trust Indentures. ECONOMIC FACTORS AND NEXT YEAR RATES AND CHARGES In 2006, the Airport was the second busiest airport in the world, measured in terms of total aircraft operations, and the second busiest in terms of total passengers. The Airport had 37,784 and 37,971 enplaned passengers in 2006 and 2005, respectively. The strong origin-destination passenger demand and the Airport s central geographical location near the center of the United States and along the most heavily traveled east/west air routes make the Airport a natural hub location

14 United Airlines and American Airlines each use the Airport as one of their major hubs. United Airlines exited from bankruptcy court protection under Chapter 11 on February 1, United Airlines (including its regional affiliates) comprised 47.9 percent of the Airport s enplaned passengers in 2006 and 43.4 percent of the enplaned passengers in American Airlines (including its regional affiliate) comprised 36.5 percent of the Airport s enplaned passengers in 2006 and 37.2 percent of the enplaned passengers in Based on the Airport s rates and charges for fiscal year 2006, total budgeted operating and maintenance expenses are projected at $375,914 and total net debt service and fund deposit requirements are projected at $265,553. Additionally, 2006 nonsignatory revenues are budgeted for $286,389 resulting in a net airline requirement of $355,078 that will be funded through landing fees, terminal area use charges and fuel system use charges. REQUESTS FOR INFORMATION This financial report is designed to provide the reader with a general overview of the Airport s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Chicago Comptroller s Office

15 CITY OF CHICAGO, ILLINOIS CHICAGO O HARE INTERNATIONAL AIRPORT STATEMENTS OF NET ASSETS DECEMBER 31, 2006 AND 2005 ($ In Thousands) ASSETS LIABILITIES AND NET ASSETS CURRENT ASSETS: CURRENT LIABILITIES: Cash and cash equivalents (Note 2) $ 116,707 $ 190,329 Accounts payable and accrued liabilities $ 47,804 $ 60,512 Investments (Note 2) 44,132 27,457 Due to other City funds 8,207 9,852 Accounts receivable net of allowance for Advances for terminal and hangar rent 13,454 16,900 doubtful accounts of approximately Deferred revenue 88, ,158 $2,620 in 2006 and $2,331 in ,933 40,769 Due from other City funds 17,339 17,180 Total current liabilities 158, ,422 Prepaid expenses 2,488 1,954 Interest receivable NONCURRENT LIABILITIES: Liabilities payable from restricted assets (Note 3): Total current assets 218, ,256 Revenue bonds and notes payable (Note 4) 101, ,076 Accounts payable 170, ,388 Due to other City funds 340 Interest payable 125, ,151 NONCURRENT ASSETS: Total liabilities payable from restricted assets 398, ,615 Restricted assets (Note 3): Cash and cash equivalents (Note 2) 887,171 1,971,701 Investments (Note 2) 1,133, ,745 Revenue bonds payable net of premium (Note 4) 5,137,929 5,193,209 Passenger facility charges and other receivables 23,349 20,707 Notes payable (Note 4) Interest receivable 19,395 13,440 Prepaid expenses 24,506 6,502 Total revenue bonds and notes payable net 5,137,929 5,193,209 Due from other City funds Due from other governments 21,205 33,667 Total noncurrent liabilities 5,536,103 5,858,824 Total restricted assets 2,109,218 2,920,921 Total liabilities 5,694,438 6,076,246 Other assets Deferred soundproofing & financing fees 328, ,986 NET ASSETS (Note 1): Invested in capital assets net of related debt 213, ,908 Property and facilities (Note 5): Land 471, ,279 Restricted net assets: Buildings and other facilities 4,407,296 4,295,043 Debt service 65,001 49,582 Construction in progress 941, ,350 Capital projects 168, ,733 Passenger facility charges 312, ,924 Total property and facilities 5,819,480 5,064,672 Airport use agreement 91,455 88,544 Less accumulated depreciation 1,756,877 1,637,338 Other assets 113,290 97,726 Property and facilities net 4,062,603 3,427,334 Total restricted net assets 751, ,509 Total noncurrent assets 6,500,262 6,677,241 Unrestricted net assets 60,111 60,834 TOTAL ASSETS $ 6,718,708 $ 6,955,497 TOTAL NET ASSETS $ 1,024,270 $ 879,251 See notes to basic financial statements

16 CITY OF CHICAGO, ILLINOIS CHICAGO O HARE INTERNATIONAL AIRPORT STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2006 AND 2005 ($ In Thousands) OPERATING REVENUES: Landing fees and terminal area use charges (Note 1) $ 304,512 $ 297,829 Rents, concessions and other (Note 6) 241, ,048 Total operating revenues 545, ,877 OPERATING EXPENSES (Notes 7 and 8): Salaries and wages 144, ,026 Repairs and maintenance 73,591 73,903 Professional and engineering services 45,357 52,141 Other operating expenses 90,841 91,895 Total operating expenses before depreciation and amortization 354, ,965 Depreciation and amortization 141, ,920 Total operating expenses 496, ,885 OPERATING INCOME 49,335 38,992 NONOPERATING REVENUES (EXPENSES): Passenger facility charges revenue 148, ,131 Passenger facility charges expenses (88) (1,177) Other nonoperating revenue 116 Interest income (Note 4) 77,400 45,865 Interest expense (Note 4) (200,916) (198,690) Total nonoperating revenues (expenses) 24,446 (9,755) Income before capital contributions 73,781 29,237 CAPITAL GRANTS (Note 1) 71,238 42,475 CHANGE IN NET ASSETS 145,019 71,712 TOTAL NET ASSETS Beginning of year 879, ,539 TOTAL NET ASSETS End of year $ 1,024,270 $ 879,251 See notes to basic financial statements

17 CITY OF CHICAGO, ILLINOIS CHICAGO O HARE INTERNATIONAL AIRPORT STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2006 AND 2005 ($ In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Landing fees and terminal area use charges $ 265,822 $ 301,295 Rents, concessions and other 240, ,633 Payments to vendors (197,891) (144,006) Payments to employees (134,225) (150,658) Transactions with other City funds net (38,338) (33,849) Cash flows from operating activities 135, ,415 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from issuance of bonds 158,239 1,561,148 Net proceeds from (payments of) commercial paper notes (389,706) 388,343 Payments to refund bonds (120,555) (269,949) Acquisition and construction of capital assets (635,415) (305,029) Capital grants 83,701 22,903 Bond issuance costs (2,805) (29,901) Principal paid on bonds (72,370) (60,355) Interest paid on bonds and note (251,074) (215,010) Noise mitigation program (19,625) (10,846) Other nonoperating income 116 Passenger facility charges and other receipts 145, ,323 Passenger facility charges expenses (88) (1,177) Cash flows (used in) from capital and related financing activities (1,104,290) 1,220,566 CASH FLOWS FROM INVESTING ACTIVITIES: (Purchases) investments, net (275,516) (93,256) Investment interest 86,267 53,770 Cash flows used in investing activities (189,249) (39,486) NET CHANGE IN CASH AND CASH EQUIVALENTS (1,158,152) 1,391,496 CASH AND CASH EQUIVALENTS Beginning of year 2,162, ,534 CASH AND CASH EQUIVALENTS End of year $ 1,003,878 $ 2,162,030 RECONCILIATION TO CASH AND CASH EQUIVALENTS REPORTED ON THE STATEMENTS OF NET ASSETS: Unrestricted $ 116,707 $ 190,329 Restricted 887,171 1,971,701 TOTAL $ 1,003,878 $ 2,162,030 See notes to basic financial statements

18 CITY OF CHICAGO, ILLINOIS CHICAGO O HARE INTERNATIONAL AIRPORT STATEMENTS OF CASH FLOWS (Concluded) YEARS ENDED DECEMBER 31, 2006 AND 2005 ($ In Thousands) RECONCILIATION OF OPERATING INCOME TO CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Operating income $ 49,335 $ 38,992 Adjustments to reconcile: Depreciation and amortization 141, ,920 Provision for doubtful accounts (825) 1,235 Changes in assets and liabilities: Decrease (increase) in accounts receivable 4,660 (376) (Increase) decrease in due from other City funds (159) 563 (Increase) decrease in prepaid expenses (533) 225 (Decrease) increase in accounts payable and due to other City funds (14,352) 21,431 (Decrease) increase in prepaid terminal rent (3,446) 2,757 (Decrease) increase in deferred revenue (41,289) 3,668 CASH FLOWS FROM OPERATING ACTIVITIES $ 135,387 $ 210,415 SUPPLEMENTAL DISCLOSURE OF NONCASH ITEMS: Property additions in 2006 and 2005 of $174,090 and $93,500, respectively, are included in accounts payable. The fair market value adjustments (loss) to investments for 2006 and 2005 were $2,601 and $6,226, respectively. See notes to basic financial statements

19 CITY OF CHICAGO, ILLINOIS CHICAGO O HARE INTERNATIONAL AIRPORT NOTES TO BASIC FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2006 AND ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Chicago O Hare International Airport (Airport) is operated by the City of Chicago (City) Department of Aviation. The Airport is included in the City s reporting entity as an Enterprise Fund. The City is a member of the Chicago-Gary Regional Airport Authority, which was created in 1995 to address the air transportation needs of the Chicago-Northwest Indiana Region. Basis of Accounting and Measurement Focus The accounting policies of the Airport are based upon accounting principles generally accepted in the United States of America, as prescribed by the Government Accounting Standards Board (GASB). The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. The accounts of the Airport are reported using the flow of economic resources measurement focus. The Airport uses the accrual basis of accounting, under which revenues are recognized when earned and expenses are recognized when incurred. Enterprise funds may elect to apply Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, provided that such standards are not in conflict with standards issued by the GASB. The Airport has elected not to apply FASB pronouncements issued after November 30, Annual Appropriated Budget The Airport has a legally adopted annual budget which is not required to be reported. Management s Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. Cash, Cash Equivalents and Investments Cash, cash equivalents and investments generally are held with the City Treasurer as required by the Municipal Code of Chicago (Code). Interest earned on pooled investments is allocated to participating funds based upon their average combined cash and investment balances. Due to contractual agreements or legal restrictions, the cash and investments of certain funds are segregated and earn and receive interest directly. The Code permits deposits only to City Council-approved depositories which must be regularly organized state or national banks and federal or state savings and loan associations, located within the City, whose deposits are federally insured. Investments authorized by the Code include interest-bearing general obligations of the City, the State of Illinois (State) and the U.S. Government; U.S. treasury bills and other non-interest-bearing general obligations of the U.S. Government purchased in the open market below face value; domestic money market mutual funds regulated by and in good standing with the Securities and Exchange Commission

20 and tax anticipation warrants issued by the City. The City is prohibited by ordinance from investing in derivatives, as defined, without City Council approval. The Airport values its investments at fair value or amortized cost as applicable. U.S. Government securities purchased at a price other than par with a maturity of less than one year are reported at amortized cost. Repurchase agreements can be purchased only from banks and certain other institutions authorized to do business in the State. The City Treasurer requires that securities pledged to secure these agreements have a market value equal to the cost of the repurchase agreements plus accrued interest. Investments, generally, do not have a maturity in excess of one year from the date of purchase. Certain other investment balances are held in accordance with the specific provisions of the applicable bond ordinances. Cash equivalents include certificates of deposit and other investments with maturities of three months or less when purchased. Accounts Receivable Allowance Management has provided an allowance for amounts recorded at year-end which may be uncollectible. Revenues and Expenses Revenues from landing fees, terminal area use charges, fueling system charges, parking revenue and concessions are reported as operating revenues. Transactions that are related to financing, investing and passenger facility charges are reported as nonoperating revenues. Salaries and wages, repair and maintenance, professional and engineering services and other expenses that relate to Airport operations are reported as operating expenses. Interest expense, passenger facility charge expenses and financing costs are reported as nonoperating expenses. Transactions with the City The City s General Fund provides services to the Airport. The amounts allocated to the Airport for these services are treated as operating expenses by the Airport and consist mainly of employee benefits, self-insured risks and administrative expenses. Other Assets Funds expended for the Noise Mitigation Program are recorded as other assets and amortized over a 20-year useful life on a straight-line basis. Property and Facilities Property and facilities are recorded at cost or, for donated assets, at market value at the date of acquisition. Expenditures greater than $5,000 for the acquisition, construction or equipping of capital projects, together with related design, architectural and engineering fees, are capitalized. Expenditures for vehicles and other movable equipment are expensed as incurred. Depreciation and amortization are provided using the straight-line method and begin in the year following the year of acquisition or completion. Estimated useful lives are as follows: Runways, aprons, tunnels, taxiways and paved roads Water drainage and sewer system Refrigeration and heating systems Buildings Electrical system Other 30 years years 30 years 40 years years years Net Assets Net Assets comprised the net earnings from operating and nonoperating revenues, expenses and capital grants. Net assets are displayed in three components invested in capital assets,

21 net of related debt; restricted for debt service, capital projects, passenger facility charges, airport use agreement and other requirements; and unrestricted. Invested in capital assets, net of related debt consists of all capital assets, net of accumulated depreciation and reduced by outstanding debt net of debt service reserve and unspent proceeds. Restricted net assets consist of net assets on which constraints are placed by external parties (such as lenders and grantors), laws, regulations and enabling legislation. Unrestricted net assets consist of all other net assets not categorized as either of the above. Employee Benefits Employee benefits are granted for vacation and sick leave, workers compensation and health care. Unused vacation leave is accrued and may be carried over for one year. Sick leave is accumulated at the rate of one day for each month worked, up to a maximum of 200 days. Severance of employment terminates all rights to receive compensation for any unused sick leave. Sick leave pay is not accrued. Employee benefit claims outstanding, including claims incurred but not reported, are estimated and recorded as liabilities. The Airport maintains insurance from a commercial carrier for workers compensation claims. Settlements in each of the past three years have been less than insurance coverage maintained. Employees are eligible to defer a portion of their salaries until future years under the City s deferred compensation plan created in accordance with Internal Revenue Code Section 457. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. The plan is administered by third-party administrators who maintain the investment portfolio. The plan s assets have been placed in trust accounts with the plan administrators for the exclusive benefit of participants and their beneficiaries and are not considered assets of the City. The City is subject to the State of Illinois Unemployment Compensation Act and has elected the reimbursing employer option for providing unemployment insurance benefits for eligible former employees. Under this option, the City reimburses the State for claims paid by the State. Bond Issuance Costs, Bond Discounts and Refunding Transactions Bond issuance costs and bond discounts are deferred and amortized over the life of the related debt, except in the case of refunding debt transactions where the amortization period is over the term of the refunding or refunded debt, whichever is shorter. Capitalized Interest Interest expense and interest earned on construction bond proceeds is capitalized during construction on those capital projects paid from the bond proceeds and is being amortized over the depreciable life of the related assets on a straight-line basis. Capital Grants The Airport reports capital grants as revenue on the Statements of Revenues, Expenses and Changes in Net Assets. Capital grants are on a reimbursement basis and revenues are recognized to the extent of allowable expenditures incurred. Revenue Recognition Landing fees, terminal area use charges and fueling system charges are assessed to the various airlines throughout each fiscal year based on estimated rates. Such rates are designed to yield collections from airlines adequate to cover certain expenses and required debt service and fund deposits as determined under provisions of the Amended and Restated Airport Use Agreement and Terminal Facilities Lease and the International Terminal Use Agreement and Facilities Lease (Use Agreements). Incremental amounts due from the airlines arise when amounts assessed, based on the estimated rates used during the year, are less than actual expenses and required deposits for the year. Such incremental amounts due from airlines are included in accrued revenue. Incremental amounts due to the airlines arise when amounts assessed, based on the estimated rates used during the year, exceed actual expenses and required deposits for the year. Such incremental amounts due to airlines are included in deferred revenue

22 Passenger Facility Charge (PFC) Revenue The Airport imposed PFCs of $4.50 per eligible enplaned passenger for the years ended December 31, 2006 and PFCs are available, subject to Federal Aviation Administration regulation and approval, to finance specific eligible capital projects. The City reports PFC revenue as nonoperating revenue and related expenses as nonoperating expenses in conformity with industry practice. 2. RESTRICTED AND UNRESTRICTED CASH, CASH EQUIVALENTS AND INVESTMENTS Investments As of December 31, 2006, the Airport had the following Investments ($ in thousands): Investment Type Investment Maturities (in Years) More Airport Funds Less Than Than 10 Fair Value U.S. Treasuries $ 97,557 $ $ $ $ 97,557 U.S. Agencies 1,325, ,194 1,591,994 Certificates of Deposits 495, ,199 Subtotal $ 1,918,556 $ 266,194 $ $ 2,184,750 Share of City's pooled funds 2,232 Total $ 2,186,982 As of December 31, 2005, the Airport had the following Investments ($ in thousands): Investment Type Investment Maturities (in Years) More Airport Funds Less Than Than 10 Fair Value U.S. Treasuries $ 95,176 $ $ $ $ 95,176 U.S. Agencies 1,737, ,879 1,899,628 Commerical Paper 25,700 25,700 Certificates of Deposits 15,871 15,871 Money Markets 1,052,048 1,052,048 Subtotal $ 2,926,544 $ 161,879 $ $ 3,088,423 Share of City's pooled funds 704 Total $ 3,089,127 Interest Rate Risk As a means of limiting its exposure to fair value losses arising from rising interest rates, the City s investment policy requires that investments generally may not have a maturity date in excess of two years from the date of purchase. Certain other investments are held in accordance with the specific provisions of applicable ordinances

23 Credit Risk The Code limits investments in commercial paper to banks whose senior obligations are rated in the top two rating categories by at least two national rating agencies and who are required to maintain such rating during the term of such investment. The Code also limits investments to domestic money market mutual funds regulated by, and in good standing with, the Securities and Exchange Commission. Certificates of Deposit are also limited by the Code to national banks which provide collateral of at least 110 percent by marketable U.S. government securities marked to market at least monthly; or secured by a corporate surety bond issued by an insurance company licensed to do business in Illinois and having a claims-paying rating in the top rating category, as rated by a nationally recognized statistical rating organization maintaining such rating during the term of such investment. The following schedule summarizes the Airports exposure to credit risk ($ in thousands): Quality Rating Aaa/AAA $ 2,165,792 $ 2,565,653 Not rated 18, ,899 Not applicable 15,871 Total Funds $ 2,184,750 $ 3,088,423 The Airport participates in the City s pooled cash and investments account, which includes amounts from other City funds and is maintained by the City Treasurer. Individual cash or investments are not specifically identifiable to any participant in the pool. The Treasurer s pooled fund is included in the City s Comprehensive Annual Financial Report. Custodial Credit Risk Cash and Certificates of Deposit This is the risk that in the event of a bank failure, the City s deposits may not be returned. The City s Investment Policy states that in order to protect the City s public fund deposits, depository institutions are to maintain collateral pledges on City deposits during the term of the deposit of at least 110 percent of marketable U.S. government, or approved securities or surety bonds, issued by top-rated insurers. Collateral is required as security whenever deposits exceed the insured limits of the FDIC. Cash and certificates of deposit with the City s various municipal depositories were $214.9 million and $255.5 million at December 31, 2006 and 2005, respectively, and the related bank balance (including certificates of deposit) was $248.4 million and $169.6 million at December 31, 2006 and 2005, respectively. Of the bank balance, $247.6 million and $168.4 million or 99.7% and 99.3% at December 31, 2006 and 2005, respectively, were either insured or collateralized with securities held by City agents in the City s name. The remainder was uninsured and uncollateralized